If you file a Chapter 7 bankruptcy, you will begin to reestablish your credit sooner than you probably think.

Most debt relief companies and message boards give off the impression that bankruptcy will ruin you, credit-wise, for up to 10 years.

While it is true that a Chapter 7 bankruptcy is generally scheduled to remain on your credit report for that long, most consumers who file Chapter 7 generally begin to reestablish their credit within about 2 years of filing.

You see, when you file a Chapter 7, you won’t be able to file another Chapter 7 and successfully discharge your debts for 8 years from your previous filing date. So you become one of the least risky consumers a banking institution can lend to.

Establishing Your Credit After Bankruptcy

Typically, reestablishing your credit after Chapter 7 bankruptcy will be similar to how it was when you were 18

It is advisable to obtain 3 secured credit cards immediately after you discharge from your bankruptcy. This way you will accelerate your rehabilitation.

Chapter 7 bankruptcies normally discharge about 90 days after filing.

You will generally qualify for a secured credit card within a matter of months of discharging.

And you will generally qualify for unsecured credit cards within 24 months of discharging.

Generally speaking, after you have acquired an unsecured credit card, they will gradually increase your credit limits after making 6 – 12 months worth of on-time payments.

Credit cards after bankruptcy

Beverly Harzog, a credit card expert, author, and consumer advocate has conducted an extensive amount of research pertaining to credit cards after bankruptcy. She has compiled a great list of secured credit cards that will help you rebuild your credit more quickly after bankruptcy.

Car loans after bankruptcy

Your ability to acquire a car loan after bankruptcy has a lot to do with your car payment history. If you have paid your car payments on-time, you will have more favorable auto financing options available to you.

Edmonds.com has a great article about auto financing after bankruptcy. To read it click here.

Buying or refinancing a home after Chapter 7 bankruptcy

Per Hud.gov: A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. During this time, the borrower must have

Re-established good credit, or

Chosen not to incur new credit obligations

An elapsed period of less than two years, but not less than 12 months, may be acceptable for an FHA-insured mortgage, if the borrower

Can show that the bankruptcy was caused by extenuating circumstances beyond his/her control, and

Has since exhibited a documented ability to manage his/her financial affairs in a responsible manner

Note: The lender must document that the borrower’s current situation indicates that the events which led to the bankruptcy are not likely to recur.

FHA mortgages generally require a 3.5% down payment. The interest rates are comparable to a conventional mortgage, they’re generally about a 1/2 percent higher.

The caveat with a FHA mortgage is you will need to pay PMI (Principle Mortgage Insurance) for the duration of your loan. Whereas with a conventional mortgage, you will no longer have to carry the PMI once you’ve paid your balance below 80% of your home’s value.

Although, you may be able to refinance into a conventional mortgage when your mortgage balance falls below 80% of your home’s value. By doing so, you would escape the PMI requirement.

In respect to bankruptcy vs. debt settlement

It’s a personal choice that only you can make. However, if you can’t settle your debts quickly, I generally recommend Chapter 7 bankruptcy versus a long-term debt settlement approach (longer than 24 months).

For more information about reestablishing your credit after filing bankruptcy, I encourage you to go to getoutofdebt.org. Steve Rhode is a consumer advocate who covers the debt relief industry and he has a great article on credit after bankruptcy.

I was formerly one of the most successful debt collectors in the country. And don’t worry, I wasn’t one of those huffy-puffy types. I also held positions of Collection Manager, Corporate Trainer, and Director of Collection Operations. I’ve worked for large third-party collection agencies, collection attorneys and large debt buyers. (full bio)

I’ve dedicated my website towards truly explaining how debt settlement really works and to dispel the myths revolving around credit and debt.

I was formerly one of the most successful debt collectors in the country. And don’t worry, I wasn’t one of those huffy-puffy types. I also held positions of Collection Manager, Corporate Trainer, and Director of Collection Operations. I’ve worked for large third-party collection agencies, collection attorneys and large debt buyers. (full bio)

I’ve dedicated my website towards truly explaining how debt settlement really works and to dispel the myths revolving around credit and debt. …

Disclosure: I may be financially compensated by any of the entities that I recommend on this website.

All recommendations are provided purely based on who I feel the most comfortable with for the particular scenario.

If you are considering getting help with your debt, please take the time to educate yourself by reading these featured articles:

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Tom Martino has been fighting for consumers for more than 30 years utilizing Radio, TV, Newspapers, Magazines, and the Internet. Tom can be heard weekday mornings on the radio from 9 to noon on Denver’s popular AM talk station 630-KHOW. Each show is filled with calls from people needing consumer help, information, and advice.

Debt Relief Á la carte is not a credit repair company. We do not provide legal, tax, or investment advice. If you need legal advice, legal expertise, or court filings, you must seek the advice of a licensed attorney. Estimates are based on your collectabilty, our past experience, and settlement performance trends. Individual results may vary. The claims made are examples of past performance and are not intended to be a guarantee of any future settlement results. We do not provide debt settlement services in all states. We use reasonable care to ensure that the information appearing on this website is up to date and accurate. While we take precautions to prevent the occurrence of errors and omissions, the users of this website should not take the accuracy of the information for granted but should seek individual professional advice that is relevant to their particular situation and needs.